What is capital?
Using a broad definition, capital is a large sum of money that is used to start a business. It can also mean the assets, such as machinery and buildings, that a business uses to produce products. In accounting terms, working capital is the difference between current assets and current liabilities as found on the balance sheet.
However you define it, a business needs to have cash or assets to make money. For this reason, you’ll need to get capital to start or grow your business.
Get capital from family and friends
This is often the first step for budding business owners. One advantage of working with family and friends is that they know you and can be flexible when it comes to repayments. The downside is that you can damage your family relationships if the business does not work out in the end. Learn more in The Upside and Downside of Getting a Business Loans from Family and Friends.
Bank business term loan
This is what most Australian business owners think about when considering a business loan. With this type of loan, you get a set amount of money and make regular repayments. The downside of this type of loan is that it usually requires property as security. Although the business loan application is handled by a relationship manager, it can take six to eight weeks to get an answer on whether your loan has been approved.
Get capital with business overdrafts and business lines of credit
These types of finance facilities are common for Australian small business owners. With a business overdraft, you can run a negative balance on your business transaction account. You pay interest only on the funds you are using. A business line of credit is a separate facility that enables you to draw cash as you need it. As with a business overdraft, you only pay interest on the funds that you have drawn.
With both business overdrafts and lines of credit, there is usually an establishment fee and monthly line fee.
Business credit cards
Some small businesses use business credit cards to meet their short-term finance needs. With most business credit cards, there is a 55-day interest-free period. Credit cards also offer other features such as points and travel insurance. If you carry a balance on a credit card, the interest will add up as the interest rate will be high.
Find out about the pros and cons of business credit cards.
Get capital with an equipment loan
With a common type of equipment finance, the asset being purchased serves as collateral for the loan. If the borrower isn’t able to make payments, the lender can take the asset and sell it to recover the money owed. With unsecured equipment finance, no collateral is required. The risk is higher for the lender, so the interest rate will be higher compared to a secured business loan.
This is a large, long term loan for making a business investment, such as purchasing property or buying a business. These loans have a high minimum amount (for example, one bank has a $250,000 minimum) so don’t be applicable to many small businesses. Find out more in What Is a Commercial Loan?
Get capital with unsecured online business loans
This way to get capital has been growing in popularity in recent years. With stricter lending requirements, banks can’t meet the needs of many small businesses seeking finance. Non-bank lenders, such as Moula, use online banking and accounting data to make lending decisions. An online application and streamlined process make it possible to provide an answer in around 24 hours. Businesses that need to access capital quickly can benefit from unsecured business loans if they have an opportunity that needs fast action. Examples include purchasing inventory, buying equipment and marketing.
Learn more about business loans from Moula.